Being self-employed takes fortitude and courage, and it can also be one of the most rewarding ways to make a living. When you’re self-employed, however, sometimes you have to get a little creative with numbers and paperwork around tax time, and this can lead to problems down the road if you ever need to apply for commercial mortgage or other types of investment property loans. As a self-employed borrower, you may not be able to prove your income or may not have all the documentation that most lenders require to approve a loan, and this can make it difficult to get financing for your projects. Fortunately, there is an alternative available called a low-documentation loan, and today we’ll discuss what that is and the two most common reasons people opt for this type of financing.
1. You're Self-Employed and Can't Prove Your Income
People who are self-employed will often report a lower income to pay fewer taxes. This is problematic to lenders who look at income first and foremost in potential borrowers because they want to ensure the borrower has the capacity to repay the loan. So even though you may make more than enough to carry the loan, the paperwork says otherwise, and this makes your risk level in the eyes of a traditional lender. A low-doc loan is ideal for people in this situation because you can get commercial mortgages approved without having to meet standard income verification requirements. It’s important to note, however, that not being able to prove your income is very different from not having the income to prove, and it’s crucial that you have a repayment strategy in place before even applying for the investment property loan.
2. You Don’t Have the Paper Trail to Back Up Your Investment Property Loan Application
Mortgage applications demand a great deal of paperwork, and the more documentation you can produce, the better your chances of getting approved (and at a lower rate, at that). Conversely, the less paperwork you have to back up your loan request, the lower your chances of approval. Here are a few of the things lenders typically want to see from borrowers:
- Personal tax returns
- Personal financial statements
- Business operating statements
- Business tax returns
When you're self-employed, however, you don’t necessarily have all these documents, and this can make it difficult to qualify for commercial mortgages. A commercial low-doc mortgage is the ideal solution, therefore, because it can help you get approved for the financing you need without you having to produce the documentation that’s normally required for the process. One of the most important factors that a lender will consider in this case is your credit score, and the higher your score is, the higher the chances that you'll get approved and qualify for a decent interest rate. Other things that will help you qualify include any assets you may have and any equity you’ve built up over the years.
Self-employed people are hardworking and dedicated, and there's no reason their style of employment should prevent them from qualifying for commercial mortgages. With low-doc loans, you can have your cake and eat it too -- as long as you can prove you're a responsible borrower through your credit history and assets, then a low-doc investment property loan may be the solution to your financing problems. Apply today to find out what kind of loan you can qualify for now.